Zurich American Insurance Company v. U.S. Specialty Insurance Company

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Zurich American Insurance Company, No. CV-20-01995-PHX-GMS 10 Plaintiff, ORDER 11 v. 12 U.S. Specialty Insurance Company, et al., 13 Defendants. [14] 15 U.S. Specialty Insurance Company, 16 Counterclaimant, 17 v. 18 Zurich American Insurance Company, 19 Counterdefendant. [21] 22 Pending before the Court is Zurich American Insurance Company’s (“Zurich”) 23 Motion for Partial Summary Judgment, (Doc. 16), and U.S. Specialty Insurance 24 Company’s (“U.S. Specialty”) Motion for Summary Judgment, (Doc. 17). For the 25 following reasons, Zurich’s motion is denied and U.S. Specialty’s motion is granted.1 [26] 1 The parties requested oral argument. Those requests are denied because the parties have 27 had an adequate opportunity to discuss the law and evidence and oral argument will not aid the Court’s decision. See Lake at Las Vegas Invs. Grp., Inc. v. Pac. Malibu Dev. Corp., [28] 933 F.2d 724 , 729 (9th Cir. 1991). 1 BACKGROUND 2 Car Wash Partners (“CWP”) and John Lai are insureds under Zurich and U.S. 3 Specialty’s insurance policies. (Doc. 15 ¶ 28.) In 2016, CWP and Mr. Lai were named as 4 defendants in a lawsuit (the “Litigation”) by Protect-A-Car Wash Systems, Inc. (“Protect5 A-Car”). Id. ¶ 25. Protect-A-Car alleged trademark infringement, false association, unfair 6 competition, and cybersquatting under the Lanham Act and Maryland common law. Id. 7 ¶ 26. Specifically, Protect-A-Car asserted that CWP and Mr. Lai violated its rights in its 8 service marks. Id. 9 CWP provided notice of the Litigation to U.S. Specialty and Zurich. Id. ¶¶ 29, 31. 10 U.S. Specialty accepted coverage only for Mr. Lai, subject to a complete reservation of 11 rights. Id. ¶ 30. Zurich initially denied CWP and Mr. Lai coverage but, after CWP sent a 12 letter to Zurich asking for reconsideration, Zurich agreed to participate in the Litigation, 13 subject to a reservation of rights. Id. ¶¶ 32, 35–36. In 2017, CWP and Mr. Lai were granted 14 summary judgment on Protect-A-Car’s claims. Id. ¶ 43. In total, Zurich paid $823,461.00 15 and U.S. Specialty paid $117,858.51 in defense fees and costs. Id. ¶ 47. 16 On May 6, 2020, Zurich filed suit in Maricopa County Superior Court, alleging that 17 U.S. Specialty, and Defendant Lloyd’s Syndicate, who has since been terminated as a 18 defendant, had not paid their equitable share of defense expenses incurred in the Litigation. 19 (Doc. 1-1.) U.S. Specialty filed a Counterclaim against Zurich, asserting that Zurich is 20 liable for and must reimburse U.S. Specialty for the $117,858.81 paid in defense costs and 21 fees. (Doc. 1-3.) U.S. Specialty removed the case to this Court on October 15, 2020. 22 (Doc. 1.) 23 Zurich now moves for partial summary judgment on its equitable contribution and 24 subrogation claims and its claim for declaratory relief, which requests that the Court 25 declare that U.S. Specialty’s policy is not excess to the coverage available under any other 26 insurance policy. U.S. Specialty also moves for summary judgment on its Counterclaim. [28] 1 DISCUSSION 2 I. Legal Standard 3 The purpose of summary judgment is “to isolate and dispose of factually 4 unsupported claims.” Celotex Corp. v. Catrett, 477 U.S. 317 , 323–24 (1986). Summary 5 judgment is appropriate if the evidence, viewed in the light most favorable to the 6 nonmoving party, shows “that there is no genuine issue as to any material fact and that the 7 movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). Only disputes 8 over facts that might affect the outcome of the suit will preclude the entry of summary 9 judgment, and the disputed evidence must be “such that a reasonable jury could return a 10 verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242 , 248 11 (1986). 12 “[A] party seeking summary judgment always bears the initial responsibility of 13 informing the district court of the basis for its motion and identifying those portions of [the 14 record] which it believes demonstrate the absence of a genuine issue of material fact.” 15 Celotex, 477 U.S. at 323. Parties opposing summary judgment are required to “cit[e] to 16 particular parts of materials in the record” establishing a genuine dispute or “show[ ] that 17 the materials cited do not establish the absence . . . of a genuine dispute.” Fed. R. Civ. P. 18 56(c)(1). A district court has no independent duty “to scour the record in search of a 19 genuine issue of triable fact[.]” Keenan v. Allan, 91 F.3d 132 1275, 1279 (9th Cir. 1996). 20 II. Analysis 21 Under Arizona law, interpretation of an insurance contract is a question of law. 22 Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 534 , 647 P.2d 1127, 1132 (1982). The 23 purpose of contract interpretation is to determine and enforce the parties’ intent. Taylor v. 24 State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 152 , 854 P.2d 1134, 1138 (1993). 25 Provisions of an insurance contract are construed according to their plain and ordinary 26 meaning from the standpoint of an “average layman who is untrained in the law or the field 27 of insurance.” Liristis v. Am. Fam. Mut. Ins. Co., 204 Ariz. 140 , 143–44, 61 P.3d 22 , 25-26 28 (Ct. App. 2002). “If an insurer desires to limit its liability under a policy, it should employ 1 language which clearly and distinctly communicates to the insured the nature of the 2 limitation.” Coconino Cnty. v. Fund Adm’rs. Ass’n, Inc., 149 Ariz. 427, 431 , 719 P.2d 693 , 3 697 (Ct. App. 1986). 4 The parties do not dispute that U.S. Specialty’s policy covered the claims against 5 Mr. Lai, but not CWP. The parties do dispute, however, whether Zurich’s policy excludes 6 coverage as to CWP and Mr. Lai. Zurich’s policy covers “personal and advertising injury,” 7 subject to certain exclusions. (Doc. 15 ¶ 3.) Zurich’s definition of personal and advertising 8 injury includes “[t]he use of another’s advertising idea in your ‘advertisement.’” Id. ¶ 4. 9 The following exclusions are relevant here: 10 i. Infringement of Copyright, Patent, Trademark Or Trade Secret 11 “Personal and advertising injury” arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property 12 rights. Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your 13 “advertisement.” However, this exclusion does not apply to infringement, in your 14 “advertisement”, of copyright, trade dress or slogan. . . . [15] 1. Unauthorized Use of Another’s Name or Product [16] “Personal and advertising injury” arising out of the unauthorized use 17 of another’s name or product in your email address, domain name, or metatag, or any other similar tactics to mislead another’s potential 18 customers. 19 Id. ¶¶ 6–7. [20] “A liability insurer’s duty to defend generally arises [i]f the complaint in the [21] action . . . upon its face alleges facts which come within the coverage of the liability [22] policy.” Quihuis v. State Farm Mut. Auto. Ins. Co., 235 Ariz. 536, 544 , 334 P.3d 719 , 727 [23] (2014) (internal quotations and citation omitted). The complaint in the Litigation alleges [24] that “[t]his action arises from Defendants’ use and proposed continued use of the service [25] mark MISTER CAR WASH . . . in commerce in connection with the sale, offering for sale, [26] and advertising of car wash services . . . in violation of Plaintiff’s rights in its own service [27] marks.” (Doc. 15-4 ¶ 2) (emphasis added). [28] 1 Zurich’s policy, read plainly, does not exclude the claims alleged against CWP and 2 Mr. Lai. Although personal and advertising injury arising out of the infringement of 3 trademarks is excluded, the policy does not state that infringement of service marks is 4 excluded. See Lahoti v. VeriCheck, Inc., 586 F.3d 1190 , 1194 n.1 (9th Cir. 2009) 5 (explaining the difference between a service mark and a trademark). As the Litigation 6 involved the Defendants’ alleged infringement of Protect-A-Car’s service marks in its 7 advertisements, the provision stating that “such other intellectual property rights do not 8 include the use of another’s advertising idea in your ‘advertisement’” is applicable. 9 Furthermore, the provision excluding unauthorized use of another’s name or product does 10 not clearly apply. For its cybersquatting claim, Protect-A-Car took issue with CWP and 11 Mr. Lai’s use of the domain name “mistercarwash.com.” (Doc. 15-4 ¶ 97.) 12 The question remaining is whether U.S. Specialty’s “other insurance” provision 13 governs. “Other insurance” clauses “seek to limit or eliminate coverage under the policy 14 in the event the insured has other insurance available.” Regal Homes, Inc. v. CNA Ins., 217 15 Ariz. 159 , 167, 171 P.3d 610, 618 (Ct. App. 2007) (internal quotations and citation 16 omitted). “When competing insurance policies both contain ‘other insurance’ clauses that 17 apply to the same claim, a court must determine which clause, if any, will be given effect 18 over the other. If the clauses do not conflict, the court should apply the clauses as written.” 19 Admiral Ins. Co. v. Cmty. Ins. Grp. SPC Ltd., No. CV-14-08152-PCT-DGC, 2016 WL 20 6873345, at *4 (D. Ariz. Nov. 22, 2016) (internal citation omitted). 21 U.S. Specialty’s policy states that “[s]uch insurance as is provided by this Policy 22 will apply only as excess over and will not contribute with any other valid and collectible 23 insurance.” (Doc. 15 ¶ 23.) Zurich’s policy provides that its insurance is primary except 24 in certain situations where it is excess. Id. ¶ 9. When the insurance is excess, the policy 25 provides that Zurich has no duty to defend the insured against any suit if another insurer 26 has a duty to defend the insured against that suit. Id. Neither party asserts that the situations 27 triggering excess insurance in the Zurich policy applies. As U.S. Specialty’s policy 28 provides excess coverage and Zurich’s policy provides primary coverage in this instance, 1 the “other insurance” provisions do not conflict. U.S. Specialty’s “other insurance” 2 provision therefore governs because U.S. Specialty and Zurich’s policies, as explained 3 above, are both triggered by the claims asserted against Mr. Lai. 4 Primary insurance must be exhausted before an excess insurer is obligated to pay. 5 Am. Fam. Mut. Ins. Co. v. Cont’l Cas. Co., 200 Ariz. 119, 121 , 23 P.3d 664, 666 (Ct. App. 6 2001). Here, Zurich’s policy provides a “personal and advertising injury limit” of 1 million 7 for “[a]ny one person or organization,” (Doc. 15 ¶ 2), and Zurich paid a total of 8 $823,461.00 in defense fees and costs. As Zurich’s primary coverage was not exhausted, 9 U.S. Specialty is not liable for defense costs. 10 Equitable subrogation is a doctrine that is intended “to compel the ultimate payment 11 of a debt by one who in justice and good conscience ought to pay it and to prevent a windfall 12 at the expense of another.” Sourcecorp., Inc. v. Norcutt, 227 Ariz. 463, 467 , 258 P.3d 281 , 13 285 (Ct. App. 2011) (internal quotations and citation omitted). The doctrine is broad 14 enough “to include every instance in which one person, not acting as a mere volunteer or 15 intruder, pays a debt for which another is primarily liable, and which in equity and good 16 conscience should have been discharged by the latter.” Id. As Zurich’s coverage was 17 triggered by the Litigation, and U.S. Specialty’s was not due to its “other insurance” clause, 18 U.S. Specialty is entitled to reimbursement of the $117,858.51 expended in defense costs 19 and fees from Zurich. 20 CONCLUSION 21 For the reasons provided above, U.S. Specialty is not liable for defense costs in the 22 Litigation because its “other insurance” provision applies. Therefore, Zurich’s request for 23 a share of defense fees is denied and U.S. Specialty is entitled to reimbursement of 24 $117,858.51 from Zurich. 25 Accordingly, 26 IT IS THEREFORE ORDERED that Zurich American Insurance Company’s 27 Motion and Memorandum of Points and Authorities in Support of Motion for Partial 28 Summary Judgment (Doc. 16) is DENIED. 1 IT IS FURTHER ORDERED that Defendant U.S. Specialty Insurance || Company’s Motion for Summary Judgment (Doc. 17) is GRANTED. 3 IT IS FURTHER ORDERED directing the Clerk of Court to enter judgment for 4|| U.S. Specialty on its Counterclaim in the amount of $117,858.51. 5 IT IS FURTHER ORDERED that U.S. Specialty may file a motion for award of || attorney’s fees pursuant to A.R.S. § 12-341.01 no later than fourteen (14) days from the 7\| date of this Order. 8 Dated this 30th day of July, 2021. 10 A Whacrsay Sooo) 11 Chief United states District Judge [28] -7-